DBRS Ratings Limited (DBRS Morningstar) confirmed its ratings on the bonds issued by Globaldrive Auto Receivables U.K. 2019-A plc (the Issuer) as follows:
-- Class A Notes at AAA (sf)
-- Class B Notes at AA (high) (sf)
The ratings on the Class A Notes and Class B Notes (the Notes) address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.
The confirmations follow an annual review of the transaction and are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults, and losses, as of the August 2020 payment date.
-- Probability of default (PD), loss given default (LGD), and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the Notes to cover the expected losses at their respective rating levels.
-- Current economic environment and an assessment of sustainable performance, as a result of the Coronavirus Disease (COVID-19) pandemic.
Globaldrive Auto Receivables U.K. 2019-A plc is a securitisation of auto loans granted to private and commercial borrowers in the United Kingdom for the purchase of new and used cars and light commercial vehicles. The receivables are originated and serviced by FCE Bank plc (FCE). The transaction is subject to residual value risk through the presence of personal contract purchase agreements. The portfolio is static. The transaction closed in September 2019 and its legal final maturity date is on the payment date in September 2026.
As of the August 2020 payment date, loans that were two- to three-months in arrears represented 0.9% of the outstanding portfolio balance, while the 90+ delinquency ratio was at 0.5%. As of the August 2020 payment date, the cumulative default ratio was 0.1% and receivables with payment holidays granted in the context of the coronavirus pandemic represented 3.2% of the outstanding portfolio balance.
PORTFOLIO ASSUMPTIONS AND KEY DRIVERS
DBRS Morningstar maintained its base case PD at 2.9% and increased its base case LGD to 58.7% and 56.9% at the AAA (sf) and AA (high) (sf) rating levels, from 56.8% and 54.9%, respectively. DBRS Morningstar maintained its residual value haircut of 40.7% and 37.0% at the AAA (sf) and AA (high) (sf) rating levels, respectively. The increase in the base case LGD reflects the adjustments made in the context of the coronavirus pandemic.
The credit enhancement to the Notes consists of the subordination of their respective junior notes. From the DBRS Morningstar initial rating to the August 2020 payment date, the credit enhancement to the Class A Notes and Class B Notes increased to 35.6% and 25.0%, from 26.0% and 18.0%, respectively.
The transaction benefits from a nonamortising reserve fund, which covers senior fees and interest on the Notes and is also available to redeem the Notes on the legal final maturity date. The liquidity reserve is currently funded at its target level of GBP 2.9 million.
Elavon Financial Services DAC, U.K. branch (Elavon UK) acts as the account bank for the transaction. Based on the DBRS Morningstar private rating of Elavon UK, the downgrade provisions outlined in the transaction documents, and other mitigating factors inherent in the transaction structure, DBRS Morningstar considers the risk arising from the exposure to the account bank to be consistent with the rating assigned to the Class A Notes, as described in DBRS Morningstar's "Legal Criteria for European Structured Finance Transactions" methodology.
Lloyds Bank Corporate Markets plc (Lloyds) acts as the swap counterparty for the transaction. DBRS Morningstar's private rating of Lloyds is above the First Rating Threshold as described in DBRS Morningstar's "Derivative Criteria for European Structured Finance Transactions" methodology.
DBRS Morningstar analysed the transaction structure in Intex DealMaker.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many ABS transactions, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. For this transaction, DBRS Morningstar applied an additional haircut to its base case recovery rate.
The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were last updated on 10 September 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/366542/global-macroeconomic-scenarios-september-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 8 May 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect DBRS Morningstar-rated ABS transactions in Europe. For more details please see https://www.dbrsmorningstar.com/research/360734/european-abs-transactions-risk-exposure-to-coronavirus-covid-19-effect and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in British pound sterling unless otherwise noted.
The principal methodology applicable to the ratings is the “Master European Structured Finance Surveillance Methodology” (22 April 2020). DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.
A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.
Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: http://www.dbrsmorningstar.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Morningstar Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/364527/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for these ratings include investor reports and loan-level data provided by FCE.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 19 September 2019, when DBRS Morningstar finalised its provisional ratings on the Notes.
The lead analyst responsibilities for this transaction have been transferred to Natalia Coman.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies is available at www.dbrsmorningstar.com.
To assess the impact of changing the transaction parameters on the ratings, DBRS Morningstar considered the following stress scenarios as compared with the parameters used to determine the ratings (the Base Case):
-- DBRS Morningstar expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD, LGD, and RV haircut assumptions at the AAA (sf) rating level are: PD of 2.9%, LGD of 58.7%, and RV haircut of 40.7%.
-- The base case PD, LGD, and RV haircut assumptions at the AA (high) (sf) rating level are: PD of 2.9%, LGD of 56.9%, and RV haircut of 37.0%.
-- The risk sensitivity overview below illustrates the ratings expected if the PD, LGD, and RV haircut increase by a certain percentage over the base case assumption. For example, if both the PD and LGD increase by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in the RV haircut. If the RV haircut increases by 50%, the rating of the Class A Notes would be expected to remain at AAA (sf), assuming no change in either the PD or LGD. Furthermore, if both the PD and LGD as well as the RV haircut increase by 50%, the rating of the Class A Notes would be expected to fall to AA (high) (sf).
Class A Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD, expected rating of AAA (sf)
-- 50% increase in both PD and LGD, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AAA (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (high) (sf)
Class B Notes Risk Sensitivity:
-- 25% increase in RV haircut, expected rating of AA (sf)
-- 50% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in both PD and LGD, expected rating of AA (sf)
-- 50% increase in both PD and LGD, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (sf)
-- 25% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in both PD and LGD and 25% increase in RV haircut, expected rating of AA (low) (sf)
-- 50% increase in both PD and LGD and 50% increase in RV haircut, expected rating of AA (low) (sf)
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.
Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 4 September 2019
DBRS Ratings Limited
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Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960.
The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Master European Structured Finance Surveillance Methodology (22 April 2020) https://www.dbrsmorningstar.com/research/359884/master-european-structured-finance-surveillance-methodology
-- Rating European Consumer and Commercial Asset-Backed Securitisations (3 September 2020) https://www.dbrsmorningstar.com/research/366294/rating-european-consumer-and-commercial-asset-backed-securitisations
-- Rating European Structured Finance Transactions Methodology (21 July 2020) https://www.dbrsmorningstar.com/research/364305/rating-european-structured-finance-transactions-methodology
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019) https://www.dbrsmorningstar.com/research/351557/interest-rate-stresses-for-european-structured-finance-transactions
-- Derivative Criteria for European Structured Finance Transactions (26 September 2019) https://www.dbrsmorningstar.com/research/350907/derivative-criteria-for-european-structured-finance-transactions
-- Legal Criteria for European Structured Finance Transactions (11 September 2020) https://www.dbrsmorningstar.com/research/350234/legal-criteria-for-european-structured-finance-transactions
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020) https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at http://www.dbrsmorningstar.com/research/278375.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.